Reference no: EM133130026

-The lack of credit markets may impede technology adoption. Discuss the role group lending in small business development. Make sure to cover the following points.

-Referring to the notions of limited liability, adverse selection and moral hazard, explain why many banks in developing countries have little interest in lending to the enterprising poor.

-Consider group lending (e.g., the Grameen bank). Explain why group lending may resolve some of the issues you noted in (a).

-Now consider two types of business development:

-Expand the capital stock but maintain the same production technology;

-Alter the production technology. Assume that the second type is associated with increased risk (e.g. for instance, increased exposure to volatile market prices). Explain why group lending may be less suitable for the second type compared to the first.

-Keeping (c) in mind, now comment on the role of government banks to support technology adoption and agricultural development.